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Gold Loan: A smarter way to sail through an emergency cash crisis

Despite having a comprehensive financial plan and saving as well as investing accordingly, you may fall short of money during an emergency and be forced to take loans.

The smartest way of managing finances is to keep your expenses within your earnings and stay debt free. Apart from keeping expenditures under check, you should also build an emergency fund to keep some money handy for meeting unforeseen expenditures during exigencies and take adequate insurance cover to reduce uncertainties in cash outgo.

However, despite having a comprehensive financial plan and saving as well as investing accordingly, you may fall short of money during an emergency and be forced to take loans.

“Emergency situations can strike anytime. In such a situation, people often have to rely on loans to meet unexpected expenditures, especially in case of inadequate emergency funds. Whether it’s for urgent medical needs, paying the tuition fee for kids, marriage, or raising capital for a new business venture, gold loans are the perfect option for immediate financing. A lot of Indian households own gold in some form. Of this, a significant portion is lying unused. Therefore, in case of an emergency, availing loan against gold can be one of the smartest financing options,” said Vijay Malhotra, Co-Founder & Chief Sales Officer, SahiBandhu.

“Over the last few years, digital lending has grown significantly while making financing easier for almost everyone. Currently standing at $270 billion, the market is expected to grow by 22 per cent CAGR in the next eight years. It is majorly driven by easily accessible mobile devices, less paperwork, and seamless eligibility checks when compared to physical bank branches. Herein, the gold loan ecosystem is flourishing. In FY 2022, the penetration rate of gold loans in India rose to 4 per cent, as against 3.3 per cent in 2022. This clearly indicates the growing availability of gold loans in the Indian market,” he added.

1. Quick approvals and instant disbursals

With the advent of tech-enabled solutions, gold loans have grown to become one of the simplest and most secure financing possibilities, especially when in need of immediate funds. Nowadays, digital gold loans make the whole process much easier. All one has to do is fill out the online application and submit documents. After this, an executive will come home to verify the purification of gold and attest all the documents. Once done, the loan is disbursed into the borrower’s account within minutes. The whole process usually takes less than 30 minutes. It is much simpler and more convenient than other financing methods. So, if an entrepreneur is in need of financing due to low cash flow, or urgent inventory requirements, getting loans against unused gold is one of the best options.

2. Simpler eligibility parameters

In comparison with other financing options, the eligibility restrictions for a gold loan are rather flexible. There is no requirement for a strong credit history or proof of income. It can be easily used to raise money for urgent financial needs, like paying for higher education. Mostly, personal or business loans are approved based on the borrower’s credit or CIBIL score. However, this is not the case with gold loans. Herein, the loan amount is determined by the market value of gold and not the borrower’s monthly income. Therefore, it is one of the most easily accessible financing options. People can easily use their gold belongings and get a loan to fund the otherwise exorbitant costs of marriage functions.

3. High loan value

In medical emergencies, people need immediate funds for timely treatments. Getting huge amounts of money at the last minute is challenging. It can even add to the financial burden. Using idle gold to raise funds is unequivocally easier. Also, they come at a relatively high loan-to-value ratio (LTV). As per the RBI mandate, one can receive credit for up to 75 per cent of the gold’s market value. For instance, borrowers having gold worth INR 20 lakh can avail of loans worth approximately INR 15 lakh. Thus, potential borrowers can estimate the amount they need to meet the fund requirement and apply for a loan as per their limit.

4. Lower interest rates

The interest rates on gold loans are comparatively lower than its counterparts, including personal loans, loans against property, business loans, corporate loans, etc. In case of an emergency, a lower interest rate is something that appeals to almost any borrower. As a result, the overall repayment amount is reduced, allowing for more effective debt management. Moreover, it does not put any additional burden on the individual finances of the borrower. People who want to raise funds for expanding their business, or margin money for buying a house, can go for gold loans without having to worry about paying high-interest rates.

5. Easy repayments

A gold loan provides borrowers with the flexibility to pay interest as well as the principal amount as per their needs. For instance, in some gold loan plans, borrowers can pay just the interest amount during the loan tenure and pay the principal amount at the end. On the other hand, they can choose to pay the full amount in one shot. As a result, a gold loan allows people to plan and manage their finances in advance, thereby reducing any default payments. Whether for medical expenses, paying due fees at college, or getting money for operating businesses, people can easily opt for gold loans and pay the amount as and when they have the money.

The flexibility of repayment makes it one of the most favourable financing options, especially in times of unexpected financial crunch. In fact, gold loan demand in the Agri sector rose by 12 per cent amid the ongoing Kharif season, majorly because of easy applications and small tenures as low as one year.

“Along with the aforementioned benefits, gold loans also offer no restrictions on end use. The funds availed after keeping gold as collateral can be used for almost any purpose. This is why it is one of the best modes of financing in case of a financial crisis, whether during a medical or personal emergency. In India, a lot of households have gold, whether in the form of jewellery or coins. They can easily use a portion of the otherwise unused gold to get a loan, even for personal requirements like paying the mortgage, school fees for children, or even starting a dream venture. With the emerging tech-driven platforms, gold loans are not limited to the urban belt of the country but can easily be accessed in Tier 2, Tier 3, and beyond cities,” said Malhotra.

Courtesy - Financial Express

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